The city takes its name from a dry lake, a unique dryland plains geographic feature situated atop the divide between the Rio Grande and Colorado River watersheds, located less than two miles south of the city, through which St Hwy 137 passes. The dry lake, with no outlet, is over two sections in size, making it the largest in Texas; it holds water temporarily and only after high runoff rain events, being used for grazing the remainder of the time. Though seasonal and temporal, the 'big playa lake', in wet periods, is significant in a semi-arid, drought-frequented environment and has been utilized regularly as a food and water resource by man and animal, alike, since prehistoric times.

Started as a small ranching community in the late 1880s, Big Lake owes its original existence to the Kansas City, Mexico and Orient Railway, which passed through the area in 1912 as it was extended from Sherwood, west of San Angelo, to Girvin and beyond the Pecos River. The growth from the railroad, coupled with that from the Santa Rita discovery well in 1923, allowed it, in 1925, to take over the position of county seat from Stiles, a pioneer ranching community established in 1894 on Centrailia Draw, approximately 20 miles to the north. The main highway through the area, US 67, was extended through the region in 1934, on the way to a termination in Presidio. The city's current existence is based on agriculture (some farming, but mostly ranching) and oil and gas service and production throughout the area.